Voluntary disclosure of income scheme: A workable idea?

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Two days to go for the Big B and two things for sure is: this government needs to raise revenue and one needs to expand the tax base. As part of his dream budget back in 1997, then Finance Minister P Chidambaram introduced the voluntary disclosure of income scheme (VDIS) go bring tax evaders into the net and boost the government's revenue. 12 years later there is growing buzz that is similar amnesty scheme could be in the work, this time to generate fund to spend on infrastructure.

Is such a scheme desirable, is it unfair on regular tax payers and is this an effort to put bad money to good use.

Former Finance Secretary, Ashok Jha said, "There have been five such voluntary disclosure of income schemes (VDIS) since 1951, if we do not factor in the demonetisation of high currency notes that took place in around 1946. None of these schemes have really unearthed any substantial amount of money."

"It started off as an idea around the offshore funds; it was raised before the elections, so it's not an original idea in that sense," Sudhir Kapadia, partner at E&Y, said. "Then we did some research and figured out of if you did some countries like Germany and Italy vis-à-vis their citizens holding money in Switzerland, not too far away physically from their countries have undertaken such exercises few years ago which is quite recent. And then the thought came that if all the amounts which people say are there offshore belonging to Indians, if there is bold scheme, a new idea which will encourage people to bring it back."

Here is a verbatim transcript of the exclusive interview with Ashok Jha and Sudhir Kapadia on CNBC-TV18. Also watch the accompanying video.

Q: Last week in an interview, I asked you for a big idea for the budget, your big idea was an amnesty scheme to bring back unaccounted offshore money: are you hopeful, do you think this could happen, do you suggest that the government should do this and are you only curtailing it and keeping it to the offshore unaccounted money or are you saying maybe there should be a domestic arm to it as well VDIS part II or part III?

Kapadia: It started off as an idea around the offshore funds; it was raised before the elections, so it's not an original idea in that sense. Then we did some research and figured out of if you did some countries like Germany and Italy vis-à-vis their citizens holding money in Switzerland, not too far away physically from their countries have undertaken such exercises few years ago which is quite recent. And then the thought came that if all the amounts which people say are there offshore belonging to Indians, if there is bold scheme, a new idea which will encourage people to bring it back. The encouragement can be in two ways; one is to say you get away with a very low rate of tax, Italy said no taxes at all and Germany imposed 25%. Italy collected USD 60 billion. So the point is if you can get this much money back in and linked to this is other discussion on fiscal stimulus. Everybody is rightly clamoring for stimulus measures - how is the book going to be balanced.

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